As non-fungible tokens make their way into hospitality, MCA examines their value as a source of revenue and considers the risk associated with the digital assets

With the global market for non-fungible tokens (NFTs) now worth $40bn and counting, operators across the sector are looking to get on board.

Brands ranging from The Alchemist to Black Sheep Coffee have found ways to incorporate NFTs as an additional revenue stream.

But amid all the hype there is plenty of uncertainty. The digital assets, that have so far been mostly associated with the art world, have been subject to the same volatile value fluctuations of adjacent cryptocurrencies.

Cryptocurrencies are notoriously risky assets, with both Bitcoin and Ethereum steadily plunging in value since the beginning of the year.

Like NFTs, they remain largely unregulated, posing significant risk to investors and buyers, and leading to a recent warning from the Financial Conduct Authority (FCA).

“It’s a timely reminder that investors who dabble in such risky assets have very little protection, as they are not regulated beyond anti-money laundering legislation,” Susannah Streeter, of Hargreaves Lansdown says.

Yet despite the uncertainty of NFTs, some believe that once the assets settle down, they could prove useful within hospitality and beyond.

“We’re all learning as we go ahead with this. We’re having a lot of fun,” Jenny McPhee, brand director at the Alchemist, tells MCA. “We’re conscious about constantly evolving and understanding what our customer wants.”

The premium cocktail bar and restaurant concept launched an exclusive collection of digital artworks as NFTs in collaboration with one of its suppliers, Cambridge Distillery. McPhee reports it has sold 40 NFTs so far.

As early adopters of the trend, McPhee reports attitudes towards experimenting with NFTs are changing quickly.

“When we originally announced it six to eight months ago, a lot of people didn’t want to have those conversations with us…it’s exciting to see where it could go.”

While widely regarded as mysterious, McPhee says they require little upfront investment, and sees them as just another way to “engage with consumers” and “push boundaries”.

“One of the reasons people come The Alchemist is because they want that immersive experience in the venue,” she says.

“We thought, why don’t we take that out of four walls and explore other avenues?”

As McPhee notes, an NFT purchase doesn’t only grant its buyer a digital work of art. It offers membership to an exclusive community and the experiences that come with being part of it.

Rewards include gift cards, cocktails, and the opportunity to hear about events first, as a “way to bring it back to venue”, McPhee says.

Similarly, Black Sheep Coffee has found a way to link NFTs to operations by offering a discount code with NFT purchases redeemable at its locations as well as its ecommerce platform.

Gabriel Shohet, co-founder and co-CEO, tells MCA the process was time-consuming but resulted in “lots of engagement”.

“It’s a great way to own a piece of the Black Sheep art collection,” he says. “I can’t really think of any disadvantages.”

Julien Letellier, digital marketing and data director at William Reed, agrees NFTs can be innovative albeit volatile channels of revenue.

“There is a bubble right now and it’s going to collapse,” he says. It is after this bubble collapses that the tokens will come into their own, he says. 

He cites the example of the Bored Ape Yacht Club, a collection of 10,000 artworks, some of which are owned by the likes of Madonna and Jimmy Fallon. Like any NFT, the purchase allows the buyer to reuse it for commercial purposes.

Each of these is hundreds of thousands of dollars, but Letellier emphasises what buyers are really investing in is membership to the Bored Ape community, and the privilege of being one of the fewer than 10,000 people who owns a Bored Ape artwork.

Letellier agrees it is only a matter of time before NFTS spill over from the arts and music industry to hospitality.

“The bubble may not be here as we know it, but I predict NFTs are here to stay and will transform everything,” he says. “Your driving licence and passport are going to become NFTs in 10-20 years.”

Letellier refers to the dotcom bubble, and the prevailing belief that the internet was just a passing fad. Still, he acknowledges the NFT market has similar barriers to entry.

The cryptocurrency Ether – the native currency on Ethereum, what Letellier refers to as “the queen of blockchain for NFTs” – is expensive even compared to other cryptocurrencies. While some other currencies are cheaper, they are not accepted by all NFT marketplaces. In addition, customers require crypto wallets that they then connect to a marketplace to make purchases.

As Streeter says, commenting on the decline in Bitcoin’s value: “This latest plunge in the wheel of fortune demonstrates that speculating in cryptocurrencies is extremely high risk and are not suitable for the vast majority of people. Cryptocurrency values are driven entirely by the speculation that in the future they will have a meaningful role in the financial system.”

Entry into the NFT world is therefore open to only a select few consumers – and a select number of premium operators who target those consumers.

However, Letellier is optimistic the market will be more democratised as it moves beyond its infancy. OpenSea – the world’s largest NFT marketplace – has made it possible to buy NFTs with credit cards or Apple Pay, although a wallet is still required.

“Today people say it’s easy, but I disagree,” Letellier says. “Moving forward, it’s going to become a seamless process.”

He points to brands like New York’s Flyfish Club, a members-only dining club offering tokenised memberships that can be leased, sold, and traded. The restaurant made millions from selling NFT memberships even before its opening.

Another early adopter is Stella Artois, which introduced a tipping NFT or non-fungible tip as part of the Stella Tips campaign. 100% of proceeds from the original sales of each NFT went towards bar staff tips, along with 10% of the royalties of each subsequent resale.

This is one of the defining points of an NFT: the seller benefits every time the token is resold. Currently seen as a major benefit for artists, this could soon become a steady stream of passive income for hospitality businesses as well.

Additionally, Stella Artois partnered with the James Beard Foundation, a non-profit culinary arts organisation, to create the Chef’s Special NFT Collection and sell tokenised recipes.

The project was a PR opportunity for both the brand and the chefs but had limited financial success, Letellier emphasises.

This suggests the value of NFTs may well lie in their ability to expand brands rather than offer significant revenue.

Letellier predicts the future will involve everything from advertising in the metaverse to investors funding new hospitality ventures and reselling shares as NFTs.

With brands like McDonald’s making trademark applications in the metaverse and Chipotle Mexican Grill creating a virtual restaurant on the online gaming platform Roblox, some might argue the future is already here.

“Whether it’s working or not, they’re still winning because of PR coverage,” Letellier says. “Yes, there’s a bubble and it’s going to collapse, but after it collapses is when the fun will start.”